INSURANCE

FUND MANAGEMENT

INTRODUCTION

WHAT IS INSURANCE - A promise of compensation for specific potential future losses in exchange for a periodic

payment. Insurance is designed to protect the financial well-being of an individual, company or other entity in the case

of unexpected loss. In law and economics, insurance is a form of risk

management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the

equitable transfer of the risk of a loss, from one entity to another, in exchange for payment

PRINCIPLES

INSURABILITY -Large number of similar exposure unitsDefinite Loss. Accidental Loss. Large Loss. Affordable PremiumCalculable LossLimited risk of catastrophically large losses

LegalIndemnity Insurable interest Utmost good faith Contribution SubrogationCausa Proxima or Proximate Cause.

INDEMNIFICATIONImagine for a moment that you rent a

chainsaw from the local ABC rental company. Since your ability to use a chainsaw safely

remains unproven to the ABC rental agent, he may ask you to sign a number of papers. One

of those papers might read: "The renter of this equipment agrees to defend, indemnify and hold harmless ABC Rental Company and its staff for any third-party claims which may

arise from the use of the equipment." This is considered indemnification, an agreement

between two parties not to hold one of them liable for future legal action or fines.

Indemnification usually only works in one direction; you as the renter agree not to hold

ABC Rental Company employees responsible if you have an accident with their chainsaw.

INDEMNIFICATIONIndemnification may not seem like a major consideration in most circumstances — the chances are pretty good that you won't be hit by a baseball at a game or suffer damages from faulty rental equipment. But, indemnification can be a very

important consideration if you're a director of a medical equipment company, for example. There's always a possibility of a patient suing one of your client hospitals for damages suffered in a fall from one of your wheelchairs. An indemnification agreement with your company means that

the hospital agrees to take financial responsibility if a patient prevails in a lawsuit. Without indemnification, you

could be held personally liable for damage payments.

INSURERS’ BUSINESS MODEL • UNDERWRITING AND INVESTIGATION

• Insurers make money in two ways:

• Through underwriting, the process by which insurers select the risks to insure and decide how much in premiums to charge for accepting those risks;

• By investing the premiums they collect from insured parties.

CLAIMSClaims and loss handling is the materialized utility of insurance; it is the actual "product" paid for, though one hopes it will never need to be used.

Incoming claims are classified based on severity and are assigned to adjusters whose settlement authority varies with their knowledge and experience.

If a claims adjuster suspects underinsurance, the condition of average may come into play to limit the insurance company's exposure.

INSURANCE PATENTS

• A recent example of a new insurance product that is patented is Usage Based auto insurance. Early versions were independently invented and patented by a major U.S. auto insurance company, Progressive Auto Insurance (U.S. Patent 5,797,134) and a Spanish independent inventor, Salvador Minguijon Perez ( EP patent 0700009 ).

• Many insurance executives are opposed to patenting insurance products because it creates a new risk for them. The Hartford insurance company, for example, recently had to pay $80 million to an independent inventor, Bancorp Services, in order to settle a patent infringement and theft of trade secret lawsuit for a type of corporate owned life insurance product invented and patented by Bancorp.

THE INSURANCE INDUSTRY AND RENT SEEKING

Certain insurance products and practices have been described as rent seeking by critics. That

is, some insurance products or practices are useful primarily because of legal benefits, such

as reducing taxes, as opposed to providing protection against risks of adverse event.

. Under United States tax law, for example, most owners of variable annuities and variable

life insurance can invest their premium payments in the stock market and defer or

eliminate paying any taxes on their investments until withdrawals are made.

ACROSS THE WORLD

Global insurance premiums grew by 3.4% in 2008 to reach $4.3 trillion. For the first time in the past three decades, premium income declined in inflation-adjusted terms, with non-life premiums falling by 0.8% and life premiums falling by 3.5%.

With premium income of $1,753bn, Europe was the most important region in 2008, followed by North America $1,346bn and Asia $933bn. The top four countries generated more than a half of premiums. The US and Japan alone accounted for 40% of world insurance, much higher than their 7% share of the global population.

INSURANCE IN INDIA After the independence, the Life Insurance Company was nationalized in 1956, and then the general insurance business was nationalized in 1972.

Only in 1999 private insurance companies were allowed back into the business of insurance with a maximum of 26 per cent of foreign holding (World Bank

Economic Review 2000)

The private insurance joint ventures have collected the premium of Rs.1019.09 crore with the investment of just Rs.3,000 crore in three years of liberalization.

Unitised insurance fund• Unitised insurance funds or unit-linked insurance

funds are a form of collective investment offered through life assurance policies

• All types of life assurance and insurers pension plans, both single premium and regular premium policies offer these funds.

INSURANCE COMPANIES

Insurance companies may be classified into two groups:1. Life insurance companies, which

sell life insurance, annuities and pensions products.

2. Non-life, General, or Property/Casualty insurance companies, which sell other types of insurance.

General insurance companies can be further divided into these sub categories.3. Standard Lines4. Excess Lines

GROUP MEMBERS

• JINAL VASA

• SEEMA MISHRA

• RAHAT

• AAMIR KHAN

• AARYENDR RAJPUROHIT

THE END